Donald K. Ngwe
Assistant Professor of Business Administration
Donald Ngwe is an assistant professor in the Marketing Unit. He teaches the Marketing course in the MBA required curriculum.
Professor Ngwe directs his research at measuring consumer responses to retailing strategies and predicting the performance of pricing schemes and product assortment decisions, particularly in the fashion and supermarket industries. His current work concerns market segmentation through outlet stores, the effectiveness of discount price labeling, and store locational choices.
Professor Ngwe earned his PhD in economics at Columbia University, together with an MPhil and MA, also in economics. He holds a bachelor’s degree in economics from the University of the Philippines.
Professor Ngwe develops structural models of supply and demand to probe deeply into the dynamics of shoppers and retailers, especially unobservable aspects of purchase behavior.
He focuses on the adoption of outlet stores in the fashion industry, using transactional data collected at the cash register. In a related research stream, he examines the role of suggested pricing in retail.
Keywords: outlet stores;
The Function of Outlet Stores
Outlet stores are ubiquitous in the retail environment, and many firms sell goods through outlets as well as their primary stores. Using a highly detailed data set from a major U.S. luxury fashion goods firm, Professor Ngwe is able to look at market segmentation by underlying consumer tastes rather than by income—important because outlet shoppers do not differ significantly from primary store shoppers in this dimension. Rather, he finds that customers differ mainly in how far they are willing to travel and their desire for new products. Through simulations using the data set, Professor Ngwe finds that the firm uses its outlet stores to serve lower-value customers who are more willing to travel and care less about the latest designs. The firm therefore stocks its outlets with older merchandise to prevent cannibalization of its primary stores—and to make the best use of the primary stores. He estimates that the rate of new product introduction in primary stores would fall by 13 percent without the outlet stores.
Working with the same data set, Professor Ngwe also studies pricing strategies for newer and older products in terms of underlying consumer tastes, particularly their desire for novelty.
The Role of Suggested Pricing in Retail
Does a $100 shirt seem more valuable when its price tag shows a 50 discount off an original price of $200? Pricing information in retail settings often has three components: an original price, a percent discount, and the final price. Little empirical evidence exists for how each component differentially affects purchase behavior, despite a preponderance of theories, and recently retailers have come under closer scrutiny for posting “original” prices that were never applied. Using sales data that feature wide variation in these pricing components and a relatively homogeneous product space, Professor Ngwe investigates how consumers process price-signaling information, especially in the discount-pricing environment of outlet stores, and is able to measure how purchase probabilities align with the way prices are presented. His findings provide a deeper understanding of how shoppers evaluate prices depending on their sophistication, and they have acute implications for how retailers should choose to set each price component.